Reliance sweetens Lyondell offer

Mukesh Ambani firm raises offer by $1 billion to $14.5 billion

Mukesh Ambani-controlled Reliance Industries (RIL) has raised its offer for bankrupt petrochemicals maker LyondellBasell (LB) to $14.5 billion. This is about $1 billion higher than its previous offer made in November.

A team of executives led by Chief Financial Officer Alok Agarwal is in the US for negotiations with the LB management and creditors, said two executives close to the development.

“RIL has shown interest in participating in LB’s forthcoming reorganisation plan. Initially, the petroleum company will pitch for a minority stake in LB with super-voting power to control the management. Later, RIL will increase its equity with additional investments in the expansion programmes of the bankrupt firm,” an executive said on condition of anonymity.

LB filed for bankruptcy a little more than a year ago amid a cash crunch and falling sales.

LB’s own restructuring plan has valued the company as high as $15.5 billion, meaning RIL still needs to persuade the creditors with more attractive propositions.

Unlike the previous offers, RIL’s new offer would give some creditors a chance to get cash for their claims. RIL may also backstop the stock sale under consideration in LB’s current reorganisation plan. This means RIL will give LB support for buying any unsubscribed shares. The Indian petroleum major had raised at least $2 billion recently as its acquisition war chest.

The RIL team also tried to convince the LB management that a tie-up would create up to $1 billion in cost savings from synergies between the two companies, said analysts tracking the development.

Earlier, Mukesh Ambani’s right-hand man Manoj Modi was spearheading the discussions with the LB management and creditors. After many rounds of discussions in early-January, RIL had first revised its offer at a valuation of $13.5 billion, about $1.5 billion higher than the initial valuation.

However, the management had not agreed to the offer and proceeded with its own reorganisation plan last week. The bankruptcy court in New York, which has been overseeing the proceedings of the beleaguered chemicals maker, had blocked RIL’s entry two weeks before it sanctioned time till mid-April for a new reorganisation plan.

A Reliance spokesman declined to comment on the revised offer.

The secured and unsecured creditors, who were fighting in court for their claims in the bankrupt company, had also agreed to the management’s new offer. Under the latest settlement, the lenders would take control of LB in exchange for forgiving $18 billion in debt.

Investors — including Apollo Management, Ares Management and Lyondell’s owner, Access Industries — also plan to “backstop” a $2.8 billion stock sale to take the company out of bankruptcy.

A deal between Reliance and Lyondell would create a mammoth energy and chemicals conglomerate with nearly $80 billion in combined revenue. LB is the world’s third-largest chemical maker and both companies have oil-refining operations. RIL sees major benefits from joining its petrochemical operations with LB’s expertise in high-end plastics.

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Feb 20: Reliance may increase bid for Lyondell